Yesterday, I was browsing recent back issues of the American Journal of Agricultural Economics looking for papers on consumer demand (somebody has an AAEA presidential address to write).
I came across two papers by Chen Zhen and co-authors published in 2014 on effects of sugared sweetened beverage taxes (or "soda taxes") that I'd previously read but not blogged on before. I thought I'd mention them here given the ongoing policy discussions surrounding the issue (Philadelphia politicians are currently considering a soda tax; Oakland has a ballot measure planned on the issue; and there is much debate about the potential effects of the soda tax already passed in Mexico).
In the first paper, Zhen and colleagues show that the way most of these taxes are designed, on a per ounce of soda basis, is not nearly as effective as would be a tax on a per calorie basis. The authors write:
“For every 3,500 beverage calories reduced, the estimated consumer surplus loss due to a calorie-based tax is $1.40 lower than the loss induced by an ounce-based tax. A 0.04 cent per kcal SSB tax is predicted to reduce beverage energy from ScanTrack supermarkets by 9.3%, compared with 8.6% from a half-cent per ounce tax. Applying this percentage change to beverages obtained from all sources, we calculated that a 0.04 cent per kcal tax on SSBs will reduce total beverage energy by about 5,800 kcal per capita per year.14 Compared with an ounce-based SSB tax that also achieves a 5,800 kcal reduction in beverage energy, the 0.04 cent per kcal SSB tax is estimated to save $2.35 per capita or $736 million for the U.S. population in consumer surplus per year.”
The "lost consumer surplus" means consumers are worse off with either tax. This is an issue I've raised several times before: there have been few serious attempts to carefully articulate how a soda tax improves consumer welfare given that consumers don't like paying higher prices (e.g., see here or here).
In the second paper, the authors show how a sugar-sweetened beverage tax might have unintended consequences.
“The preferred demand specification predicts that almost half of the reduction in SSB calories caused by an increase in SSB prices is compensated for by an increase in calories from other foods. We further found potential unintended consequences of an SSB price increase on sodium and fat intake. Because energy intake is just one of many dimensions of nutrition, the results on sodium and fat highlight the complexity of using targeted food and beverage taxes to improve nutrition outcomes.”
They predict that one half-cent per ounce tax on such beverages would reduce body weight by "0.37 and 0.16 kg/person in 1 year and 0.70 and 0.31 kg/person in 10 years for low- and high-income adults, respectively."
They also write:
“The welfare loss for low-income households is about $5 per household per year more than high-income households because low-income households reported higher SSB purchases in Homescan. This difference in welfare loss between low- and high-income households reinforces the regressive nature of an SSB tax”